The acylation of rhodopsin with palmitic acid has been studied to determine the function of this modification in the intracellular transport of rhodopsin and its incorporation into functional disc membranes. Palmitate is added to rhodopsin shortly after the polypeptide is synthesized. Most of the new rhodopsin molecules are retained in the endoplasmic reticulum for at least six hours, suggesting that transport to the outer segment may not be a continuous process. Palmitate is also added to mature rhodopsin molecules in the outer segment indicating a possible repair mechanism or a physiologically important cycle of removal and replacement. The phospholipids of the outer segment turn over continuously but retain and, in the case of phosphatidylethanolamine, even increase the level of labeling with palmitic acid. Thus, this fatty acid undergoes a continuous process of reutilization. Cytidine monophosphate, a by-product of phospholipid turnover, is cleaved by a manganese-dependent nucleotidase in rod outer segments. Histochemical studies indicate that this enzyme is transported from the pigment epithelium to the outer sesgments in anticipation of disc shedding and may represent a class of degradative enzymes involved in this process.